By comparison, Google is worth (based on its market capitalization) around $253 billion—so the search giant would have to spend about four percent of its net worth (spread over five years) to bring a fair portion of us some of that sweet, cheap, crazy-fast broadband.

Google appears to be looking for cities that have a certain size (geographic area) and a certain population density—Austin's is roughly the same size as Kansas City, KS and Kansas City, MO combined. Google's aim, after all, is really to sell increasingly targeted ads—Fiber, like Gmail and search, is a means of doing that.

We remain skeptical that Google will find a scalable and economically feasible model to extend its build out to a large portion of the US, as costs would be substantial, regulatory and competitive barriers material, and in the end the effort would have limited impact on the global trajectory of the business.

For example, making the far from trivial assumption that Google can identify 20 million homes in relatively contiguous areas with (on average) similar characteristics as Kansas City when it comes to the most important drivers of network deployment cost, homes per mile of plant and the mix of aerial, buried and underground infrastructure, and that Google decides to build out a fiber network to serve them over a period of five years, we estimate the [total capital expenditure] investment required to be in the order of $11 billion to pass the homes, before acquiring or connecting a single customer.

As far as these financial analysts are concerned, it seems unlikely that we’re going to get some serious competition everywhere that Ars readers live, but we can dream, can’t we?

So why is Google undertaking this entire process?

Here's what the Bernstein folks say: "we believe Google Fiber has two related objectives: first, Google is seeking to figure out whether or not, or under what conditions, it can make money as a facilities-based provider of broadband and pay TV services; second, it is an opportunity for Google to test new applications, new ad formats and delivery models (e.g., targeted TV ads) and to get further insight into consumer behavior. We do not believe this effort will have any significant impact on regulation or legislation."

UPDATE 3:45pm CT: Kirjner wrote us to say that he had "picked up a typo in our write-up. The $11 billion is not annual but total. I corrected it in our files. Please do so too if you can." In other words, rather than Google spending $11 billion annually, the analysts estimate this is what Google would spend over five years.

Promoted Comments

Maybe I'm dense, or maybe it's the article from earlier about ISP's injecting their own ads, but it never occurred to me that having Google as an ISP meant they would be data mining all my online activity. (They already have quite a bit what with Google Search and Gmail.)

I genuinely like a lot of the products Google is producing, but I am also getting a little more skeptical about the depth and extent of their data repositories. Nonetheless, if Google is doing it, every other company in the space is either also doing it or would like to.

They're completely ignoring how much money Google would make back. They won't magically spend all the money in the same month before any ROI. They would slowly roll out Fiber, make back some of the invested money, and then keep reinvesting. It's completely viable.

Ideally, doing something akin to what Verizon started would be prudent - with government dollars backing it up... wire up municipal areas over a certain population density (with a fairly low barrier to entry) for fiber, then fill in the blanks with White Spaces, while mandating that broadcasters move to an all IP format vacating more room for White Spaces.

It's not a fully fleshed out idea, but it given a national infrastructure that the people AND the government want while opening up spectrum that the telco's want while giving broadcasters the ability to still *gasp* broadcast.

Maybe I'm dense, or maybe it's the article from earlier about ISP's injecting their own ads, but it never occurred to me that having Google as an ISP meant they would be data mining all my online activity. (They already have quite a bit what with Google Search and Gmail.)

I genuinely like a lot of the products Google is producing, but I am also getting a little more skeptical about the depth and extent of their data repositories. Nonetheless, if Google is doing it, every other company in the space is either also doing it or would like to.

Google's playing the long-game. When the iPhone hit, Google knew that it needed a serious dog in the mobile-web fight. And so we have Android. Google will put a man on mars and clone dinosaurs from fossilized mosquitoes if they think they can use it as leverage to match up buyers to sellers and make the ad dollars flow.

We estimate that the incremental cost to acquire and connect each broadband-only home at $464 and at $794 for each double play (broadband and TV) home

ughhhh wut

So the cost of the fiber, installation and routing equipment itself is basically pretty small, and the bulk of the cost is ... the TV box?

No, thats not right. The assumptions here are weird. The bulk of the cost for something like this is the roll out of the fiber network. Once you've paid for that, installing an IPTV cable box is cheap and gets cheaper every year thanks to Moore's law. The cost of digging and laying fiber . . . not so much.

They're completely ignoring how much money Google would make back. They won't magically spend all the money in the same month before any ROI. They would slowly roll out Fiber, make back some of the invested money, and then keep reinvesting. It's completely viable.

We estimate that the incremental cost to acquire and connect each broadband-only home at $464 and at $794 for each double play (broadband and TV) home

ughhhh wut

So the cost of the fiber, installation and routing equipment itself is basically pretty small, and the bulk of the cost is ... the TV box?

No, thats not right. The assumptions here are weird. The bulk of the cost for something like this is the roll out of the fiber network. Once you've paid for that, installing an IPTV cable box is cheap and gets cheaper every year thanks to Moore's law. The cost of digging and laying fiber . . . not so much.

The content over the fiber isn't free, even if the end user doesn't use it and doesn't want it. Cable providers pay up-front licensing costs for things like local broadcasts and then those are included on your IPTV access, even if you don't want them.

This is why broadcasters are really afraid of cord cutters, they don't pay blindly into services they don't use.

Those aren't the only reasons Google is building their Google Fiber business. It's an effort to kick other U.S. operators into competing and providing better services. I believe they've stated as much.

I pay $75 per month for Comcast 25 mbps Internet (without phone or cable to go along with it). I can't wait for someone to come along and give me a better alternative.

If Google continues to expand it seems they will go wherever it's cheapest to deploy and with techie leaning demographics. It's curious that KC and Austin are two blue cities in red states. Both have a tech side to them, KC metro more telcom/mobile apps oriented, Austin closer tied to Silicon Valley companies. Both metros are around 2M population, wonder if they are purposely going after mid-sized markets. Austin is a giant college town, KC is a small major league metro.

We estimate that the incremental cost to acquire and connect each broadband-only home at $464 and at $794 for each double play (broadband and TV) home

ughhhh wut

So the cost of the fiber, installation and routing equipment itself is basically pretty small, and the bulk of the cost is ... the TV box?

No, thats not right. The assumptions here are weird. The bulk of the cost for something like this is the roll out of the fiber network. Once you've paid for that, installing an IPTV cable box is cheap and gets cheaper every year thanks to Moore's law. The cost of digging and laying fiber . . . not so much.

second, it is an opportunity for Google to test new applications, new ad formats and delivery models (e.g., targeted TV ads) and to get further insight into consumer behavior. We do not believe this effort will have any significant impact on regulation or legislation."

This seems like flawed logic to me. Why open in a second market, Austin, if only for research? Austin matches KC in terms of size and demographics, so what exactly is new they gain from this? A whole lot of time, expense, and political capital spent on an experiment? I don't buy this argument. Google is in it for something larger/longer term.

Those aren't the only reasons Google is building their Google Fiber business. It's an effort to kick other U.S. operators into competing and providing better services. I believe they've stated as much.

I pay $75 per month for Comcast 25 mbps Internet (without phone or cable to go along with it). I can't wait for someone to come along and give me a better alternative.

I pay $25 for 50/10, also from Comcast (though it's a 12 month deal I believe). I would check and see what deals they have (or threaten to leave), as it's the people who don't try to get something better where Comcast makes most of its profit.

We estimate that the incremental cost to acquire and connect each broadband-only home at $464 and at $794 for each double play (broadband and TV) home

ughhhh wut

So the cost of the fiber, installation and routing equipment itself is basically pretty small, and the bulk of the cost is ... the TV box?

No, thats not right. The assumptions here are weird. The bulk of the cost for something like this is the roll out of the fiber network. Once you've paid for that, installing an IPTV cable box is cheap and gets cheaper every year thanks to Moore's law. The cost of digging and laying fiber . . . not so much.

You misread. Connection costs aren't just the modem. It's the fiber from the neighborhood node to the premises of the property. Also called the last mile, this fiber doesn't cost and more or less than any other length, but that cost is only recouped by one subscriber (you and your household). The numbers you cite probably also include the advertising cost needed to get another customer.

So, yes, this is expensive and the market by itself encourages ISP's to invest elsewhere. It's why America doesn't have widespread fiber yet.

Nationwide Google Fiber would cost $11B per year, probably will never happen*

* - With the monopoly and duopoly friendly system in place in the US now

Two words: dumb pipe. Drop one to every home in the municipality. Then, you'll get revenue from ISPs wanting to use the infrastructure, massive price wars will mean consumers get connectivity at a fair price, new jobs could be created (by lowering the entry point cost for being an ISP)... everyone wins, except the giant Telecos that you pay way too much for substandard service.

This system where everyone builds redundant infrastructure is asinine and only benefits those on the receiving end of the profits. This type of setup is beginning to show limitations. ISPs have no reason to innovate when their monopoly ensures them a steady, unending revenue stream.

We estimate that the incremental cost to acquire and connect each broadband-only home at $464 and at $794 for each double play (broadband and TV) home

ughhhh wut

So the cost of the fiber, installation and routing equipment itself is basically pretty small, and the bulk of the cost is ... the TV box?

No, thats not right. The assumptions here are weird. The bulk of the cost for something like this is the roll out of the fiber network. Once you've paid for that, installing an IPTV cable box is cheap and gets cheaper every year thanks to Moore's law. The cost of digging and laying fiber . . . not so much.

You misread. Connection costs aren't just the modem. It's the fiber from the neighborhood node to the premises of the property.

No I think you misread me. They quote the cost for the fiber, advertising, boxes, etc. Its all in there.

Whats nuts is that they claim the cost of the fiber and actual broadband connection is tiny compared to the cost of the set top box. Even labor is supposed to be very small.

I doubt that very much. Laying fiber isn't cheap. Neither is optical equipment. Meanwhile I don't think a cable box costs so much that they're unaffordable seeing as I know lots of people with cable TV

S_T_R wrote:

So, yes, this is expensive and the market by itself encourages ISP's to invest elsewhere. It's why America doesn't have widespread fiber yet.

Yes I realize that. I'm just pointing out that the reason they give for it being expensive seems implausible. If it were really true, cable TV itself would be expensive, since you need a cable box no matter how you get the signal.

Edit: Sorry I didn't quote that information in the original post, but the PDF software they use blocks copy and paste so its very difficult. If you want to see why I think that is so ridiculous, you need to read the actual report. Theres a lot more in there, including a breakdown of estimated costs (which is also ridiculous IMO).

Those aren't the only reasons Google is building their Google Fiber business. It's an effort to kick other U.S. operators into competing and providing better services. I believe they've stated as much.

I pay $75 per month for Comcast 25 mbps Internet (without phone or cable to go along with it). I can't wait for someone to come along and give me a better alternative.

I pay €20 per month for 32 MBit Internet and unlimited phone calls. Without Google, but then I'm not in the US.

Quick math: $1k per home, with their assumptions. I can think of a lot of people who'd pay some or all of the install costs for a good, fast, solid 'net connection. And not just techies, as I can think of non-geek family members who would do so with nary a second thought.

Really, offhand, I think my grandmother is the only one that wouldn't. She's 90, though, and barely uses email. Actuallly, I take that back: she might so the rest of us would have access when we visit. That's the main reason she got a cable modem, after all. But her generation probably wouldn't, by and large.

chipmunkofdoom2 wrote:

This system where everyone builds redundant infrastructure is asinine and only benefits those on the receiving end of the profits. This type of setup is beginning to show limitations. ISPs have no reason to innovate when their monopoly ensures them a steady, unending revenue stream.

The content over the fiber isn't free, even if the end user doesn't use it and doesn't want it. Cable providers pay up-front licensing costs for things like local broadcasts and then those are included on your IPTV access, even if you don't want them.

This is why broadcasters are really afraid of cord cutters, they don't pay blindly into services they don't use.

It isn't broadcasters that are afraid, you can cut the cord today and if you have a decent antenna still get the broadcasters channels with no issue. Re-trans agreements amount to a small percentage of the money a broadcast station takes in. The ones that are afraid are the Cable and Sat companies, and cable channels, like ESPN, HBO, E!, etc... Those channels lose out on their slice of the cable and sat tv subscriptions and are much more dependent on that revenue.

Whats nuts is that they claim the cost of the fiber and actual broadband connection is tiny compared to the cost of the set top box. Even labor is supposed to be very small.

I doubt that very much. Laying fiber isn't cheap. Neither is optical equipment. Meanwhile I don't think a cable box costs so much that they're unaffordable seeing as I know lots of people with cable TV

I think the actual cost of the ip TV boxes might surprise you. Yeah, cable boxes are common but HD DVR's aren't cheap when you realize that the CableCo is charging 15-20$ a month for that cable box. DirecTV's dvrs cost 400-500$ to own instead of leasing them. Also keep in mind that when you get the cable package you get a Nexus 7 tablet to use as a remote.

Here's what the Berstein folks say: "we believe Google Fiber has two related objectives: first, Google is seeking to figure out whether or not, or under what conditions, it can make money as a facilities-based provider of broadband and pay TV services."

In other words, it's something else for Google to cancel on you after you've come to rely on it, like Reader. Only a lot more crippling when they finally do. Relying on Google for anything other than Search is a mistake. They're simply not a dependable company fit to form a long term relationship with.

I think it's mostly a threat. Assuming Google Fiber results in a massive drop of incumbent ISP customer levels in KC/Austin Google can use the threat of eating their lunch elsewhere to prod cable companies to upgrade their service at all levels instead of just tacking more expensive ones onto the top.

nationalize all the ISP, use all their excess profits and build a nationwide fiber.

Even better, we can hold politicians accountable for the content that they let us surf to.

Of course, it's possible that those free-speech types might dominate in the end. After all, it's not as if politicians are proving they're tough on crime by competing with each other for how long they can throw people in prison.

Google Fiber should do very well in Austin with the large tech industry and poor current broadband choices. The current choices are Time Warner (50/5 max (most get less with the 50 MB/s plan)) and U-Verse (24/3 max if you're close to a gateway). Time Warner's customer service is terrible and has even gotten worse over the past few years (1-1.5 stars on Yelp) with constant rate increases, data caps, and ridiculous charges, like a new $4/mo. modem charge. Google should also be able to spend much less on advertising than Time Warner. Time Warner's loud commercials mean nothing when there's a competing gigabit network in town. I think anywhere without FiOS or strong gigabit project, like in Seattle, will see very conversion rates when Google moves in and the old providers can either die off or compete on price.

So; $11 billion buys them a pipe that they own, passing 20 million homes. There's only 130 millionish "homes" in the US, and a lot of those are not regular neighborhood houses. I bet 80 million homes gets a large part of the population, and almost everyone that is "in town", and quite a few that are not.

They could basically buy the internet. It ain't for sale, but if they gave it to me (with a very reasonable $400ish connect fee), you know I'd take that. And maybe regret it 20 years down the road, but I'd bite today. I'm pretty sure most people would.

If I'm Google, I'm asking why wouldn't we do this, even if we only break even, or even spend a little bit over the long term. The long term payoff could be, well, basically owning the internet. Just taking those ridiculous figures at face value; doubling one fourth, and quadrupling the other two fourths, (to account for increased distance between those other 60 million homes) puts me at $111 billion over quite a few years. Then they're making some money back on hookups and subscriptions, so it's not nearly that much net cost. But those figures are stuff that Google could afford.

I'm saying they don't have to make it "viable", not like the other guys do. Google sells ads, and that's viable as shit, they don't have to make a profit off of this. Owning the pipe between your ad the consumer is simply like other businesses opening a new warehouse. They could make the case owning fiber and selling connections is exactly their core business; or rather, it should be. I'd be making that case if I worked there.

UPDATE 3:45pm CT: Kirjner wrote us to say that he had "picked up a typo in our write-up. The $11 billion is not annual but total. I corrected it in our files. Please do so too if you can." In other words, rather than Google spending $11 billion annually, the analysts estimate this is what Google would spend over five years.

The important factor is really how many people you can get on the hook for the $70 and $120 lines. I haven't seen much numbers on how many they have paying for the gigabit service (haven't looked hard either), but there are the one's taking the brunt of the initial cost. Really the cost per home is trivial as they have already had one successful roll out, and already well understand those costs. Its more about getting the maximum number of people to sign up combined with ease of installation. Which is why mid-size cities are being targeted. They have the room to dig as well as expand outward, and they already host a great job market in the tech and engineering fields.

Also I'd love for them to come to Raleigh-Durham, but i'd imagine its slightly smaller than their desired population density mostly due to the gap between the two cities. Really they could just start at their data center in Lenoir, NC and knock out Charlotte, Winston-Salem, Greensboro, Durham, and Raleigh in swoop of the major cities.

$70 change me 2x that price and I would still be ahead.. Google please bring google fiber to san jose.. Save us from the hell that is ATT and Comcast..

$70 i'm paying more than that for 400k down..

i'm paying for 2 adsl lines as well as a flakier uverse internet.

Adsl = max rate with the wind behind it 400k even tho i'm paying for 6mb.uVerse say's there fiber. In reality, it's fiber to the d-slam and copper to the door.Max rate 9mb... out of a 100mb connection.... the lion share of the bandwidth is taken up by tv.The more u-verse boxes that are watching live tv.. the slower your internet connection goes.

Here's what the Berstein folks say: "we believe Google Fiber has two related objectives: first, Google is seeking to figure out whether or not, or under what conditions, it can make money as a facilities-based provider of broadband and pay TV services."

In other words, it's something else for Google to cancel on you after you've come to rely on it, like Reader. Only a lot more crippling when they finally do. Relying on Google for anything other than Search is a mistake. They're simply not a dependable company fit to form a long term relationship with.

Well, you're right, but think of what it would take for them to change that about themselves.

I mean, right now, they don't even sell electrons. They sell ordered patterns that I can apply to my own electrons. That's a pretty flaky product; it's hardly even real. It doesn't surprise me they act that way sometimes.

Having hardware obligations is the single best thing to give them a kick in the pants when it comes to not being so flaky.